Increasing M&A and Startup Activity Driving UK Tech Sector Growth

International law firm Pinsent Masons today launched its What’s Market? TechnologyM&A Trends Reportcovering Q2 2012. The report uncovered a promising upward trend in M&A activity, along with continued high levels of startup investment, which doubled from Q1 and together made up 75% of transactions.

In Q2 2012 Pinsent Masons advised on technology transactions with a combined value of more than £380 million, building on the over £30m of deals it advised on in Q1 2012. This dramatic increase is due to a greater average deal value, with M&A levels increasing, particularly in the online retail and IT/Software sectors. Over 60% of deals had an international aspect, demonstrating the global nature of the technology industry.

The Q2 2012 study is the latest research in Pinsent Masons’ What’s Market? Technology M&A Trends Report series, providing a snapshot of recent deal activity in the sector. By comparing this data over the last 18 months, and combining it with its market experience,Pinsent Masonshas been able to provide a comprehensive analysis of the factors currently driving technology M&A. The full report can be downloaded here.

Pinsent Masons' partner Andrew Hornigold commented:

"We have now built up 18 months of data on M&A in the UK tech sector and the overall trend looks extremely positive. Our figures from Q1 predicted a busy year, and these statistics would seem to indicate a tentative return of confidence in the recently turbulent M&A markets. It seems to suggest that buyers and their investors, financiers and other stakeholders may be more willing to accept risks to acquire good assets.”

Jonathan Snade, senior associate, Pinsent Masons added:“Tech startups continue to attract investment, driven by the Government’s focus on entrepreneurs, which is combining with the ever increasing availability of support from incubators, accelerators and other networks within the Silicon Roundabout community to foster growth. Online retail was the most active sector for transactions. This isn’t a major surprise as our experience tells us that as the number of consumers with tablets and smartphones rises, e-commerce and m-commerce markets will play an increasingly significant role in consumer activity and purchasing behaviour.”

The Pinsent Masons report highlights five key trends:

Growth in value of transactionIn Q2 2012 Pinsent Masons advised on and completed eight technology transactions with a combined value of over £380 million. While this was the same number of transactions as Q1, deal value was substantially higher, with an average of nearly £50m (compared to £3.75m in the previous quarter).

Focus on M&A and startup investmentCompared to Q1 there was a smaller variety of transaction types, with the emphasis on M&A and start-up/early stage investments, which each represented 37.5% of total transactions. Over the first half of the year this meant that M&A was the dominant transaction type (37.5%), followed by startup investment (25%) and group reorganisation/share placings (12.5% each).

Sector focusOnline retail and IT/software (37.5% each) were the busiest sectors. The first was undoubtedly driven by increased e-commerce and m-commerce spending and the need to complete transactions in good time before the busy Christmas season. IT/Software has been consistently busy across H1 2012, making up 31% of all transactions, ahead of biosciences and online retail (25% each).

Transactions spread across the quarter2011 saw major spikes in monthly activity, with most transactions either completing in March (ahead of the end of the tax year) and December. In contrast Q2 2012 saw a much more even spread of transactions across April, May and June. This continues the trend seen in Q1 2012 to a more constant pattern of activity, demonstrating a more measured and longer term approach by buyers, sellers and investors.

International perspectiveThe majority of deals (60%) had an international dimension. This cross-border element was also noticeable in Q1 and is being driven by the increasing internationalisation of the technology and internet sectors and is expected to continue for the rest of 2012.

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